In a January 21, 2024, Barchart article on the sugar futures market, I wrote:
Sugar’s bullish trend that started in 2020 remains intact in early 2024. While the first upside target is at the November 2023 28.14 high, the 2011 31.85 and 36.08 cents per pound technical resistance levels could come into play later this year if supply and demand fundamentals move into a deficit. Higher crude oil prices will likely continue to support gains in the sweet commodity.
Active month ICE world sugar futures number 11 were at the 23.57 cents per pound level on January 19. On March 15, the May sugar #11 futures contract was sitting just below the 22 cents per pound level, which could be a golden buying opportunity. The Teucrium Sugar ETF (CANE) tracks ICE sugar futures prices higher and lower.
A pullback holds the 20 cents per pound level
Nearby ICE world sugar futures #11 have held the 20 cents per pound level.
The five-year continuous world sugar futures chart shows the sweet soft commodity broke through the 20 cents per pound level in 2021 and traded around the level from August 2021 through early 2023. The last time sugar futures were below 20 cents was in February 2023. In November 2023, sugar futures reached the highest price since 2011 at 28.14 cents per pound, where the rally ran out of upside steam. Sugar futures corrected to a 20.03 cents per pound low in late December 2023 but held the 20 cents level. After rising to a lower high of 24.62 cents in late January 2024, the price was at the 21.15 cents level on March 15.
World free-market sugar futures continue to consolidate above the 20 cents per pound level in mid-March 2024.
Cocoa has been the latest soft to go parabolic
Sugar, Arabica coffee, cocoa, cotton, and frozen concentrated orange juice futures make up the soft commodities sector of the raw materials asset class. Agricultural commodities tend to be highly volatile.
In early 2022, coffee and cotton futures rose to the highest prices since 2011. Sugar followed in April 2023, rallying to the highest price in a dozen years.
Meanwhile, frozen concentrated orange juice futures rose to a new all-time high in February 2023, when the price eclipsed the $2.35 per pound level. OJ futures went parabolic, reaching $4.3195 in October 2023. They remain in record territory at over the $3.65 level on March 1.
Cocoa futures are the latest soft commodity to experience a parabolic move. Coming into 2024, the all-time high in the cocoa futures market was at $5,379 per ton in 1977. Cocoa futures blew through that price like a hot knife goes through butter in February 2024, reaching $8,048 per ton in March 2024.
The price action in FCOJ and cocoa could be a harbinger of the future price action in the sugar and other soft commodity markets.
Sugar has a huge upside potential
Sugar’s long-term chart shows an uncanny resemblance to cocoa that eclipsed the 1977 high this year.
The chart, dating back to 1970, highlights world sugar futures record 1974 66.0 cents per pound peak. If the cocoa market is a model for the sweet commodity, a rally that takes sugar prices above the 2011 36.08 cents high could go parabolic.
The trend since April 2020 has been bullish- The forward displays some supply concerns
Cocoa’s explosive rally was due to dry conditions and falling supplies from West Africa. The Ivory Coast and Ghana supply over 60% of the world’s cocoa beans.
Meanwhile, countries worldwide subsidize sugar prices to guarantee supplies. However, Brazil is the 800-pound gorilla in sugar production, and any weather or other events that cause supply disruptions could ignite a sweet parabolic rally.
The five-year chart shows world sugar futures fell to a 9.05 cents per pound pandemic-inspired low in
April 2020, a significant bottom. Over the past four years, sugar futures have made higher lows and higher highs. After reaching 28.14 cents in November 2023, the price corrected but remains above 20 cents per pound. The decline did not change the bullish trend; the consolidation could be a healthy and bullish sign.
The twenty-year ICE cocoa futures chart highlights a prolonged consolidation period above the $2,000 per ton level. When cocoa futures broke out above the 2011 $3,826 per ton high, the soft commodity was off to the races on the upside.
Sugar has the potential to follow cocoa, given the potential for weather issues and rising production costs. Moreover, sugar is a food and a fuel that increasingly follows volatile crude oil and gasoline prices. In the U.S., corn is the primary ingredient in ethanol. In Brazil, sugar is the ingredient for biofuel production. Therefore, rising energy prices and increased agricultural production costs could light a bullish fuse under the sugar futures market.
Meanwhile, the sugar futures curve out to October 2026 delivery displays a slight backwardation, with prices for deferred delivery lower than nearby delivery. Backwardation in commodities is a condition that tends to highlight supply concerns that can lead to higher prices. While backwardation is inherently bearish because it assumes production will increase and prices will fall, cocoa’s parabolic move occurred as supply concerns increased. Prices exploded higher as a deficit developed.
CANE will track a portfolio of three ICE sugar futures contracts
The most direct route for a risk position in sugar is via the highly liquid futures and futures options on the Intercontinental Exchange. Trading futures requires a futures account and involves margin and leverage. The Teucrium Sugar ETF (CANE) is an alternative for market participants seeking exposure without venturing into the sugar futures arena. CANE’s fund profile states:
At $13.22 per share, CANE had over $16.1 million in assets under management. CANE trades an average of 20,737 shares daily and charges a 0.22% management fee. To minimize roll risks, CANE owns a portfolio of three deferred ICE sugar futures contracts. CANE does not own the front month, where most speculative activity and volatility occur. Therefore, CANE tends to underperform the nearby contract on the upside and outperform during downside corrections.
The continuous sugar futures contract rose 311% from 9.05 in April 2020 to 28.14 cents in November 2023. The decline to 20.03 cents in December 2023 took sugar futures 28.8% lower.
Over the same period, CANE rose 216% from $4.91 to $15.51 per share. The correction took the ETF 22.6% lower to $12.01 per share. CANE underperformed on the upside but outperformed when the sugar price declined.
If cocoa and FCOJ are guides, an exciting parabolic rally in sugar could be on the horizon. At around 22 cents per pound, CANE is an unleveraged ETF to tuck away in your portfolio that could offer sweet returns in the coming months and years.
On the date of publication, Andrew Hecht did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
